Business Competition in the Perspective of Islamic Economics
In the discourse of Islamic economics in Indonesia, the prevailing narrative often becomes trapped in the narrow aspect of product legality alone, such as the halal or haram status of a commodity. This overly restricted focus results in other fundamental dimensions of the economic system being frequently overlooked by the public.
However, Islam also emphasises the importance of a fair market mechanism free from distortions. Islam not only mandates the consumption of lawful goods, but also demands that market mechanisms operate with justice through healthy business competition—open, transparent, and harmful to none.
The book “Islamic Business Competition Jurisprudence” (Fikih Persaingan Usaha), published by the Indonesia’s Business Competition Commission (KPPU) and Lakpesdam PBNU, reinforces this principle: business competition (al-munafasah at-tijariyyah) is not merely an economic phenomenon, but a process encouraged in Islam provided it does not cause harm (mafsadat) or loss to society. This book reveals the substantive convergence between classical jurisprudential principles and modern economic theory.
In industrial economics, market analysis typically employs the Structure-Conduct-Performance (SCP) framework to analyse the relationship between market structure, conduct, and performance. Islamic competition jurisprudence goes further by providing an ethical-theological foundation to the conduct dimension—the moral aspect often overlooked in conventional economic analysis.
Fair Markets: Between Efficiency and Welfare
Theoretically, industrial economics idealises perfect competition markets because no single business actor can dictate prices. However, reality is often marked by market failures triggered by excessive economic concentration, such as monopolistic practices, oligopoly, or unhealthy market dominance.
Although the term “business competition” does not appear explicitly in classical Islamic jurisprudence literature, its substance is deeply rooted in mu’amalah discussions—the law governing transactions and economic relationships among people. This demonstrates that the principle of market justice has been a serious concern in Islamic legal tradition for a long time.
From an Islamic perspective, healthy business competition aligns with the principle of allocative efficiency. Islam fundamentally encourages positive competition through the call to fastabiqul khairat (competing in goodness). When business actors compete to improve quality and offer more competitive prices through innovation, society reaps real benefits from such efficiency.
Furthermore, Islam embeds the orientation of maqashid al-syari’ah (objectives of Islamic law) into this competitive dynamic. Competition is not merely an instrument for pursuing economic surplus or material profit alone, but a strategic means to realise comprehensive public welfare.
Prohibitions Against Market-Distorting Practices
Conversely, Islam strictly forbids any practices that artificially distort market mechanisms. One such prohibited practice is ikhtiar (hoarding), the deliberate accumulation of goods to create artificial scarcity among the public.
From an economic perspective, hoarding triggers artificial supply shocks that disrupt the balance of supply and demand. This results in the fair price discovery mechanism becoming paralysed, so that prices no longer reflect true value but rather the result of market manipulation.
The Prophet Muhammad explicitly forbade this practice: “Whoever hoards food for forty nights from the Muslims has been freed from Allah’s protection, and Allah has freed himself from him.” Although there are differing opinions among Islamic scholars regarding the conditions and commodity limits, the majority of jurists (jumhur fuqaha) agree that hoarding that harms the public is forbidden.
Islam explicitly prohibits intentional information asymmetry, particularly through two forms: al-ghisysyu (fraud regarding goods) and najsy (artificial bidding through collusion). In information economics theory, al-ghisysyu represents information asymmetry that triggers adverse selection—where lower-quality goods eventually dominate the market.
Furthermore, a manipulative climate such as najsy fosters moral hazard behaviour. Both phenomena fundamentally damage integrity and trust in the market system.
Oversight Institutions and Market Justice Enforcement
Every economic system requires institutions to enforce the rules of the game. In institutional economics theory, institutions function to reduce uncertainty by creating incentives for economic actors to behave productively rather than opportunistically.
Islam has a long history of market oversight institutions known as Hisbah. Ibn Khaldun in his Muqaddimah defines hisbah as “work related to the concept of enjoining good and forbidding evil to create common welfare.” At this level, hisbah is viewed as a manifestation of morality in maintaining socio-economic order.
As Ibn Taymiyyah emphasised in “Al-Hisbah fi al-Islam”, the role of hisbah is not merely oversight, but comprehensive market justice enforcement. This includes preventive and repressive measures against practices that damage competition, such as preventing monopolies and price manipulation that could harm the wider public.
Market inspectors (muhtasib) during the time of the Prophet Muhammad and the Rightly Guided Caliphs regularly conducted market inspections to monitor prices and prevent fraud. They were able to distinguish between two different sources of price increases with different implications: price increases due to fair market mechanisms (supply and demand) versus increases caused by structural engineering.